On a year-over-year basis real GDP increased 1.62% while the quarter-to-quarter non-annualized percent change was 0.74%.

The latest quarterly results indicate that the most notable source of weakness in the economy came from government defense spending which declined at a rate of 12.1% from Q3 while change in private nonfarm inventories made notable contributions accounting for 1.87% of the percent change of final real GDP while providing the majority of the 20.6% quarter-to-quarter rate of change for the entire Gross Private Domestic Investment category.

That very same category also saw fixed residential investment expand at a rate of 11.5% while fixed non-residential structures declined at a rate of 2.6% over the same period.

Keep in mind that these results are likely very poorly estimated and are sure to be revised notably in following quarters and even years to come.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage (from FHA and conforming GSE data) declined 2 basis points to 3.965% since last week while the purchase application volume increased 0.9% and the refinance application declined 2.2% over the same period.

With rates trending ever lower, the economy weak and the FOMC members remaining dovish, it will be interesting to see how far rates on the long end can decline. All things being equal, falling home prices, declining purchase applications and record low long lending rates all appear to indicate a deflationary for the macro-economy.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).

The latest release of the S&P/Case-Shiller (CSI) home price indices for December reported that the non-seasonally adjusted Composite-10 price index declined 1.08% since November while the Composite-20 index declined 1.11% over the same period resulting in the lowest level seen to on the Composite-10 since June 2003 and the largest peak decline seen since the nearly six year old housing bust began in 2006.

The latest CSI data clearly indicates that the price trends are experiencing a declining trend into the typically less active summer and fall season and as I recently pointed out, the more timely and less distorted Radar Logic RPX data is continuing to capture notable falling prices driven primarily by seasonality.

The 10-city composite index declined 3.94% as compared to December 2010 while the 20-city composite declined 3.99% over the same period.

Topping the list of regional peak decliners was Las Vegas at -61.36%, Phoenix at -55.19%, Miami at -50.97%, Tampa at -47.47% and Detroit at -46.17%.

Additionally, both of the broad composite indices show significant peak declines slumping -33.76% for the 10-city national index and -33.80% for the 20-city national index on a peak comparison basis.

“Given more favorable housing market conditions, the trend in contract activity implies we are on track for a more meaningful sales gain this year. With a sustained downtrend in unsold inventory, this would bring about a broad price stabilization or even modest national price growth, of course with local variations.”

The following chart shows the seasonally adjusted national pending home sales index along with the percent change on a year-over-year basis as well as the percent change from the peak set in 2005 (click for larger version).

Friday, February 24, 2012

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for January showing a monthly decline with sales dropping 0.97% since December but rising 3.55% above the level seen in January 2011 and remaining at an historically low level of 321K SAAR units.

Seasonally adjusted “initial” went unchanged at 351,000 claims from last week’s revised 351,000 claims while seasonally adjusted “continued” claims declined by 52,000 resulting in an “insured” unemployment rate of 2.7%.

Since the middle of 2008 though, two federal government sponsored “extended” unemployment benefit programs (the “extended benefits” and “EUC 2008” from recent legislation) have been picking up claimants that have fallen off of the traditional unemployment benefits rolls.

Currently there are some 3.40 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.98 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.39 million people on state and federal unemployment rolls.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage (from FHA and conforming GSE data) went unchanged at 3.98% since last week while the purchase application volume declined 2.9% and the refinance application declined 4.8% over the same period.

With rates trending ever lower, the economy seemingly near recession and the FOMC members becoming more dovish by the day, it will be interesting to see how far rates on the long end can decline. All things being equal, falling home prices, declining purchase applications and record low long lending rates all appear to indicate a deflationary for the macro-economy.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).

Friday, February 17, 2012

The Commercial Paper (CP) market is essentially a private debt market used by corporations as a generally cheaper means of funding typical recurring operations than drawing on a line of bank credit.

Commercial paper, as financial instrument, is by no means a recent innovation and, in fact, you can read about how the CP market was affected by the many historic financial shocks experienced by the U.S. (read Panic on Wall Street: A History of America’s Financial Disasters)

Although the Federal Reserve was able to artificially bring CP rates down significantly since the shocking 615 basis point spread blowout (A2/P2 spread) of late 2008, they had not been successful in preventing an overall contraction in the CP market.

Single family housing permits, the most leading of indicators, increased 0.9% from last month to 445K single family units (SAAR), and increased 6.2% above the level seen in January 2011 but remaining an astonishing 75.25% below the peak in September 2005.

Single family housing starts declined 1.0% to 508K units (SAAR), and climbed 16.2% above the level seen in January 2011 but remaining a stunning 72.13% below the peak set in early 2006.

With the substantial headwinds of elevated unemployment, epic levels of foreclosure and delinquency, mounting bankruptcies, contracting consumer credit, and falling real wages, an overhang of inventory and still falling home prices, the environment for “organic” home sales remains weak and likely very fragile.

Since the middle of 2008 though, two federal government sponsored “extended” unemployment benefit programs (the “extended benefits” and “EUC 2008” from recent legislation) have been picking up claimants that have fallen off of the traditional unemployment benefits rolls.

Currently there are some 3.47 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 4.09 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.57 million people on state and federal unemployment rolls.

While all indicators made notable increased again in February, it's important to note that conditions still remain distressed by historic standards though, the last few months results appears to indicate a major change in the builder sentiment.

The new home market will likely not resume any significant form of healthy function until the considerable overhang of inventory is cleared.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage (from FHA and conforming GSE data) increased 1 basis point to 3.98% since last week while the purchase application volume declined 8.4% and the refinance application increased 0.8% over the same period.

With rates trending ever lower, the economy seemingly near recession and the FOMC members becoming more dovish by the day, it will be interesting to see how far rates on the long end can decline. All things being equal, falling home prices, declining purchase applications and record low long lending rates all appear to indicate a deflationary for the macro-economy.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).